Interview with Adel Ali, Group CEO Air Arabia

Yeah, I mean those are very different days. I mean I guess fully neither of us would have known about low-cost back in the 1990s. I mean Southwest had been born, it certainly wasn't present in Europe, it certainly wasn't present in the Middle East.

You know, thank you John. Let me tell a story as well — my older brother told me, he says your life has been always about downgrades. For some of you who don't know, I joined British Airways to work on the fleet of Concorde, which was the best thing available in the industry then. I moved from there — because Concorde was taken to operate on the North Atlantic, Adam was handling first and business class passengers and giving John a hard time in London. So that was a downgrade from Concorde to the premium cabin. Then I moved from there to Gulf Air, then I moved from Gulf Air to low-cost. So my life has been always downgrading in the industry. Yet I must admit this is the one that I enjoyed the most.

The career has been very interesting. If you work for a big organization like British Airways you think actually you mastered the industry. So I thought I knew everything about the airline industry until the time that I then decided to put an airline together. I realized I knew very little, and then I had to sort of walk through the path of how you put an airline together. And we were successful to put it together in about six months, which normally takes a good two years. So we had a good group of people working alongside me and managed to put this together quickly. Something that I think is probably one of the best things I've done in my life — putting an LCC together in this region.

Of course when you put an airline like that together, you copy — and we did copy the LCCs of Europe, of America, of Australia, because they were all there at the time. Copying is always easy, but you need to know how to paste. So we managed to paste it correctly, and that's why it worked for us.

Very much so. I think one has to be realistic in life. We looked at everything surrounding the low-cost industry and we had to look at the full demography and what happens in the reality of life in where we live — the MENA region. I recognized at the time that the success of Ryanair or Southwest was that they were operating in a continent, not in countries. Europe had 530 million people living there. Ryanair could have operated the whole of Europe. Southwest — another 300 million people, and all they needed were aeroplanes and airports.

Whereas we, 15 years back with no exception, most of the Middle East, Indian subcontinent, Africa's airports were very restricted in offering services. Almost every airline that existed was owned by the government of those countries, which is natural — when you own something you want to protect it. So life was difficult. We said, well if we get five aircraft, which was in our original business plan for five years, it should be good enough.

The encouragement came when we looked at which is the best airport to put a low-cost carrier. Most key airports in the region had a national airline based there. We looked at Sharjah — had a fantastic infrastructure, runway, aerodrome, everything else. And the catchment area was good — you had a 15-20 minute drive to Dubai, if the traffic helps you. Then you had the northern emirates — all of their customers had to sort of drive via Sharjah Airport to reach Dubai Airport. So the catchment was good.

The other motive was that we were living in a country that had a very high percentage of expatriate population. If you are in a foreign country you want two things — you want either to travel back home or get somebody from home to come visit you. And there isn't enough time to do that if you can't afford it. So we managed to bring affordability into the business. And as soon as we did this, we saw from year one — which is not known for the airline industry — to break even and make profit. And we achieved that, because people wanted to travel. There was a big need and thirst for affordable, simple travelling between the MENA region.

We're lucky to think of — well, don't let me say that, I'd really get going because it could hurt other airlines. I think the industry has changed and probably we started the change back in 2003 — 28 October 2003 specifically. Because there was no confidence in something called low-cost airline, people didn't understand fully. Airports, as I said, were very restrictive. The question was — to me airports are no different than bus stops. You can't have a bus stop and tell the buses don't come in. It's a building with a very long road for aircraft to land on, and the more you allow airplanes to land the better for the economy of the country and more people make money.

A good story, since we have a little time — when we started at Sharjah Airport back in 2003, the airport had a few charter operators and few carriers. The total occupancy of the airport was around 15%, and at the time they were moving about 200 to 300 thousand passengers a year. Few staff, it was dull, and when the business is dull you don't invest in it. So when we started we had to upgrade all that. But very interestingly, as we grew, the whole area transformed.

The whole Sharjah Airport surrounding used to employ less than 500 people. Today there are 10,000 people working in that area. We had four broken taxis that used to take passengers from the terminal, and halfway through they used to negotiate on the price — if you didn't pay them what they wanted they used to get you out. Today they're our fleet of 300 branded taxis in that airport, with bus service all over the UAE. We've got a hotel with a huge catering infrastructure, offices have been put in place, and the safe zone. More people go to the university campus next to us. The whole area has developed, and we contribute just under seven percent to Sharjah's GDP. So it's not just an airline.

I think most governments — just to come back to the question you asked me — most of the governments and authorities around the region realize now that aviation is a good economy, and the more of that you have the more it helps. This morning at a conference at the Ritz-Carlton talking about unemployment among the youth in the Arab world — every year I go to this conference the percentage increases. Aviation creates a service industry, and combined the aviation and service industry is one of the biggest employment sectors. So from an economical angle it's good. And what is pleasing 15 years later is to find that a lot of countries have changed their philosophies about airlines coming in, and those who have succeeded have been able to invest in new airports, recruit more people, and the whole economic demography has changed.

The city we're sitting in here is a very good example of that. Some of you may be as old as John and I, or maybe you're not — you see what was Dubai pre-85 before Emirates was established and what is it today, in terms of the taxis, the airport, the people who work there. The whole infrastructure has changed, and no matter how much Dubai Airport puts more buildings and expands, it still gets busier. Abu Dhabi is not the exception — we've seen that in Beirut, we've seen that at Kuwait Airport, we've seen that of airports in Saudi. Now they do encourage airlines to come, yet one would like to see the whole region open up and let the flow of aeroplanes be free. That will only help the traveling public in terms of convenience and also drive the pricing down.

So we are all in for open sky policy amongst the Arab world, anywhere in the world we can do. But when we started, we had to struggle for years. We had a business model that had no Indians, no Pakistanis, no Saudi Arabians. Today we fly to 13 airports in India, 13 cities, Saudi Arabia, Pakistan — more than eight airports. So people are changing. There is a recognition almost in every Civil Aviation Authority that the best way to grow the industry, to benefit the country they are in, is to allow more airplanes to land.

Yeah, I mean there was — people were used to flying in a way. Air travel was for the rich societies. If we go back to much before my days and John's days, people used to travel in three-piece suits with a bow tie, and now they travel in their pajamas. That has been a huge shift, and the transition we had to go through so many experiences. But when we said we really have a low cost, a lot of people thought we will have no seats on aeroplanes and people will stand on the flight as a bus, or pay for a toilet. That was our eastern area. A lot of people assumed we have no insurance, and you name it.

Strangely enough, people were objecting to not having something free given to them, but they still wanted the cheap fare. Very interesting — you travel on a train for 20 hours and they give you nothing, nothing. And the train fare is actually in a lot of countries, particularly in Europe, more expensive than airfare. And if you're lucky then you've got to walk down to the end of the corridor, pay about five euros for a little rotten cup of coffee, and nobody complains.

From one airline on each route, and that's how this industry works. So for us, it's focused on the business as a business. I think we run a financial company. We've got shareholders—30,000 people have shares in the company. They have trusted us with their money, and we're good to make sure that they have an expectation that we give them back something every year; otherwise, they put the money in the bank and get it back.

I think if we were in Europe—I mean, Ryanair in Europe—every 200 miles you have an airport, and the train infrastructure is good, roads are good, and you don't have borders. Therefore, whichever airport you land in, it makes it easy. The agony in the MENA region, you've got other challenges. It's the only region in the world, by the way, that the main country airport is cheaper than the secondary airports. So if I fly to the main city, which is very busy that all the airlines fly into, I pay lower fees than serving a city that has nobody flying—a empty airport, nobody's in there. And all those things are done, and you find the fuel is also more expensive at that airport. Now, in Europe, secondary airports want to build those cities, so they recruit people, they give you an incentive to fly, they give you a lower fuel price, which is great for the LCC business model.

The reason being is, in Europe, most of the airports are private businesses. Right here, almost 99.9 percent of the airports are owned by the country, and about 90 percent of them, the responsible person for the national airline, the airport, the ground handling, and everything is the same government person. And that's why the competition is not good. For those countries who have multiple airports, but they seem to apply, and all what it does, it does not develop the industry fast enough, or it develops it and you have massive congestion in one airport and the other airports are empty. And where you want to recruit people are all those small cities, because in the big cities the job opportunities are bigger. I think it was 2008 or 2009 when we started flying to India. At the time, India had four or five international airports, and we went in there and we had a lot of discussion with the authorities, civil aviation. We said, 'Listen, you have four or five airports that are so congested, and people have to come, clear immigration, then go and buy a ticket on a domestic flight or take a 50-hour train or something. All the cities have good airports.' So if we convert some of them, and they experimented, and they gave us as a result. We, as Air Arabia, and I think quite a lot of other airlines now, operate a lot of airports within India and other places, and those five airports' business has not shrunk; it's grew. So the more you generate and the more people get into the air, the business grows. I have not seen in my career time a country that says air travel has reduced as a result; it's only grown.

I think we've had in the 15 years we've been there, we had 15 good profitable years, including 2018. 2018—somebody last night asked me, 'Tell me what happened with a broad capital investment.' And my answer was, 'Do you remember 2008, Lehman Brothers issues?' I said, 'It's version 2 of Lehman Brothers.' So basically, we lost an investment that we made in a private equity. The legal side is taking care of it, and it will happen. A lot of companies have invested in that company; it was MENA's biggest private equity fund that existed. But we decided as a company to take everything, impair the whole amount into one year. The reason we did that is, let's take a one-year loss and move on in life because our business is not about managing the legal side. That is something I will look after with the lawyers and the expert in the industry, but we need to grow our business. The potential and the opportunities are there. So I decided to convince our board and our shareholders at the AGM that, look, let's take a full amount impairment and let's concentrate on our business. The average investment had absolutely no impact on the company's strategy, growth, financial issues. So we're moving on, and hopefully we will have a good year 2019 and life would be back to normal. So that was in 2018. Hopefully, a history behind us from a day-to-day business management.

I think, let me start with Saudi, as geographically it's closer. Saudi has, over years, changed a lot in a positive way. We used to fly to three airports; now we fly to fourteen airports in Saudi. I think the civil aviation and the government understood that the more you bring in airlines, the more people will visit. There is a natural market there, and Saudi, as you said, from a population point of view, is large, therefore it's a big market for any airline. I mean, also what they have done is they have established proper systems for the secondary airports, although they are still more expensive than the main airports, but still it's outstanding. But the fuel is more expensive and all that, scared than actually in the main airports. But I think what they've also done, they've also developed their own Saudi carriers. There are six airlines, and Saudi's now based—Saudi carrier, so they've also developed their own airlines because this business is a two-way; it's not a one-way system. So you go into somebody's country, they come into your country, so both sides benefit. So those Saudi carriers now come to UAE and UAE carriers go in there. And I think there was a slowdown about two years ago, a minor drop, but we see the economy seems to be bouncing back on Saudi market. Certainly, our flights are back to normal and the seat factor—we're quite optimistic about Saudi and the way they are approaching the whole commercial side of life. I think India—we have not grown in India since 2010 simply because no more seats have been given to Air Arabia. Again, there was a big Indian population here; there is a big local non-Indian who fly into India for various reasons, including medical tourists and so on. India has a huge population, big market, so it's always going to be congestion on the roads. I think for us, it's reciprocal, so at the moment, the Indian carriers use the same number of seats coming into UAE as UAE uses to go into India. And the market has carried probably 49-51, 51-49, depending on the month. We carry a year-round about over 90 percent seat factor. As you know, from your previous profession, that once you exceed an 80 percent seat factor, it calls for increasing the capacity. And to have year-round over 90 and 95% seat factor means you're turning business away. We hope that the Federal Civil Aviation Authority, which I know they are continuing to have discussions with the Indian Authority, we hope soon they'll be able—mostly they good election in India, plus that, hopefully, if they be able to conclude to increase the capacity, and if they do, we will benefit from that.

Yeah, no, I think anything simple—we call them JVs, joint ventures. We own 49%, and the local commercial business people in those countries own 51%. From a product point of view, from the management point of view, it's exactly the same, so it's seamless. You know, it's no different than easyJet or Ryanair in Europe. The only difference is because in there, the law of the land allows you to have one certificate for all the carriers. You have in this part of the world, each country has got its own certification, hence we have different legal entities and certification. Otherwise, there's no difference. And just to sum that up, we are very pleased with—obviously, here it's done well. We're very happy with Ras Al Khaimah; it came up four years ago, it's very steady and it's working well. Morocco has been a star, and we moved up to ten aeroplanes in there and more to go. And we fly to—will fly over 72 routes between six airports in Morocco to all over Europe, wherever there is an airport they tend to go. And it's doing financially very well. Egypt, because what happened 2011 onward, it was unstable; we slowed down things. We see everything is back now, tourists coming back from this part of the world, from Europe. We kept Egypt at the time with just one aeroplane to keep the license, but now we've sent two more, and our intention is to grow. And we're doing flights from the Red Sea into Europe, Upper Egypt into the Gulf, and from Alexandria. So Egypt for us now is the time to grow that base. So those are good. Jordan, I've said this story before; it hasn't worked for us, so we closed it down. Interesting to see Ryanair—so Michael O'Leary quoted yesterday he's going into Jordan in quite a big way now. So you might come back, maybe think his style of communicating might push things a lot a bit. That could be helpful. I wish him luck; I hope he gets a better treatment than us.

I think the A320 has been a good aeroplane; it's done fantastic for us. Every profitability and success of Air Arabia has been associated with the A320, good aeroplane. We always wanted to do a little more, and we always wanted the slightly bigger airplane because some of our routes we tend to have multiple frequencies, but you could do with a bigger airplane, especially if you have a 90 and 95% seat factor. So the A321 gives us 50 more seats on an aeroplane, which is good. Also, it gives us a longer range. So we do at the moment places like Prague; we want to do a bit more in North Africa. We have some traffic rights into China, Kuala Lumpur, as you mentioned. For some unknown reason, a lot of guys, they tell me, 'When do you fly to Bangkok?' And I said, 'We're not.' So again, all those routes opportunities that come up—perhaps few places in Europe that we think that could be a niche market that we could do, not necessarily where there are massive operations exist already from here, but how could we complement those. So the A321, again, it's a very new aeroplane; we need to test it. So we just got it two weeks ago; we put it into service two days ago, and I think we will be testing that aircraft. We should have had the third aircraft delivered, but there is a bit of slow in Airbus and some challenges as well. So as soon as we get the six of them and we know enough of them, we don't need to move on and put an order. And that order—Air Arabia needs to put an order in for probably hundreds of aeroplanes, some of it to replace our existing fleet and some of it for organic growth of the hubs that we have. And we're going out to both Boeing and Airbus to see who has a commercial deal, so whomever comes up with a better option, we will go for. And probably a question will be—we'll be able to have a mix of fleet. I think we've got a fleet that is sizeable now that if the commercial giving is good, the business can afford switching, right? Both companies, yes. And again, just to get it precise, because I put in my notes to remember to ask you—know who were you looking at Boeing, Airbus? Now, what's going to ask you about the regional players? I'm one of them now into Boeing, but exactly a bit smaller size. But you know, we are not a mega-sized airline to order every year, so we're rather with a team of experts within the organization that's looking at all our future growth. Because we started operating domestic in Egypt as well as in Morocco, and those will only grow. So maybe an A320 or A321 may not be the best aircraft, and some of those regional aircraft could be suitable. So we're going into this with a very open mind. And immediate—I mean, this has been, you know, the analysis has been going on for a while. But the challenge which sadly has emerged in the last few weeks for Boeing with the MAX—and I think I've just seen quoted even while the ATM's been going on, even His Royal Highness here in Dubai has commented about the MAX. Would that color your thinking as well? It's a complicated one because we don't quite know where this is going. I guess if you have orders and waiting for delivery, your decision making is something. For us, by the time I think we make those decisions, one would hope things are sorted out. Because I don't think one aircraft—I mean, there is a duopoly, two companies, so if one doesn't produce, it's quite challenging for one of them to fulfill the market. Yes, not ready. I mean, people keep saying, 'Why is Airbus not taking advantage?' They both got very full, it's all these—it ain't easy. No, that's interesting to watch. And just back on the A321, ahead of it—so when are we like today on our order? Yeah, I thought you said this. Yeah, I think—I mean, time goes very fast, but I think we have gone—the guys are meeting as we speak with both companies this week, and the meetings will go on. This negotiation will take time, so the sooner the better. But obviously, Boeing has got some challenges as a woman to handle priority to what we're doing, because if I was Boeing, my focus would be somewhere else. But one would respect all those circumstances, and as soon as we're ready, I suspect it would be another three to four months before we actually put an order.

We normally hedge about 90% of our fuel, so this year we hedged that 90 plus percent at $62, which is good for us. You know, it is a double-edged sword in terms of you need the right fuel price in the region for the economy to keep good. Yeah, but obviously, putting it into the tank, the cheaper it is, the better. Absolutely. And again, geopolitical challenges—you know, plenty around. I mean, sadly, this particular region has—what's new, exactly? After this, is again about being low-cost is also being flexible and dynamic, as you describe. Egypt, you went down to one aircraft, now you're back up. We're—it's not a marquee, I don't think you're in terrestrial anchor, are you? Sadly, we do you aren't, sir. Like twice a day we don't ever have, but I know they're twice of it—I've never sad news there. And this shows the dynamics, how it changes quickly. You know, that country's built up a great tourism following, and suddenly it's—those things are inevitable. I mean, the geopolitical has been something we've been living it for years in this part of the world. Being optimistic, I think it's probably better than what we were—things are much cooler, so it's on the right track. And I think, you know, the odd things like Sri Lanka welcome up unfortunately, and so on. But you know what, the public seem to forget things like this very quickly, and the market regains itself very, very fast. We've seen these experiences in Egypt; we've seen these experiences elsewhere in India and Mumbai in a hotel few years back. I think the public are very intelligent nowadays that they realize, okay, well we're not going to put an X on something just because something—it don't slow down for a few weeks, and then things will be under control.

I had a moment. I mean, we've got a good A32 seat pitch. We have got in-flight entertainment on all our aircraft using your own gadgets, just being launched like yesterday called Skytime, using the digital technology that exists. Our in-flight food is excellent. I think, when probably I'm biased, but I think we've with the best economy product at the best price that exists in the industry. I'm not after business class cabin yet. Yeah, that's a contrast. Is near, by—I guess they have a different mission in life, and speaking closely within the Ritz and so on. But for us, I think, you know, it's not broken so don't fix it. But the in-flight entertainment where you've just announced—I mean, that's gonna be complimentary. You know, not going to try to extract a few extra dirhams. It's—it would have been very expensive if we would have used what, and this is why we didn't do it in the past. But now technology allows you to put a small box on the top or on the side of an aeroplane, and it gives—it streams all sorts of few hundred channels, and people can enjoy it. And I, you know, the wait is the worst thing on an aeroplane, and so I don't know if they're happy. So we put the new seats which has got the trays, which has the any gadget holder for you, just to enjoy it and charge in your gadget. It does cost a little, but it's small in comparison. Other—we're down to the last couple of minutes.

We haven't examined that yet. I know AirAsia is significant and large in KL, but as we start the operation after summer, we'll see how things go. If there was an opportunity at both party benefits, we may look at it. But at the moment, there's nothing happening there.

We will be once we get enough airplanes. We're waiting now. We flank—we start the first medium-range in June, in July after Ramadan, and the first one is Kuala Lumpur. And as more aeroplanes come, with other routes, we'll be doing.

Right. You know, major costs in airlines are aeroplanes, fuel, and your people. Aeroplanes come with aeroplanes with the maintenance with all that sort of things. So the more you utilize it, it's no different than the taxi—the more that you're on the road driving, you're carrying customers, the better your bottom line is. So that's one element. Efficiency in the staff—you need to have good staff, well-paid, so they work hard and that brings in efficiency, not the numbers. And I think the third bit is about the overall efficiency of processes. What you don't need in the aircraft—take, for example, fuel is a good one. There are lots of technology fuel management systems nowadays that tend to save you fuel on flying, altitude, and so on. And the more of those things you invest in and bring to the business, the better it is for you, saving other folks.